Why the residential slowdown is putting diversification, commercial lending and new growth opportunities firmly on the agenda for Australian lenders.
Australia’s lending market is shifting.
House prices have softened. Residential transaction volumes have slowed. Auction activity has eased. Loan enquiries are falling away. And NAB recently reported residential home loan applications down around 15% since the March quarter.
For lenders heavily reliant on residential lending, the impact is becoming increasingly difficult to ignore. But there is another side to this story.
While residential lending has slowed, NAB’s Business and Private Banking loan book grew by 4 per cent to $295 billion, its strongest result since FY22.
Demand hasn’t disappeared. It’s moving. And that raises one of the most important questions for lenders right now: Where is the next wave of lending growth going to come from?
Watch The Video
In our latest GML Lender Insights, Managing Partner, Craig Green, draws on more than 40 years in banking and finance to look beyond the current headlines and explore what changing market conditions could mean for lenders, where new opportunities may be emerging and why now is the time to think seriously about diversification.
▶ Watch the full Lender Insights video with Craig Green
Residential Lending Is Slowing. What Does That Mean for Lenders?
There is no point pretending the market hasn’t changed. The current residential slowdown is more than a property story. It has become a lending story.
For lenders whose growth strategies have historically relied heavily on residential mortgage volumes, softer demand exposes the vulnerability of depending too heavily on one segment of the market.
The immediate temptation may be to compete harder for the same pool of residential borrowers. But there is another question worth asking:
Where else can we grow?
Diversification does not mean walking away from residential lending. Residential will continue to be an important part of the Australian lending market.
It means creating a more resilient lending business, with the products and capability to respond when demand shifts between different areas of the market.
▶ Hear Craig’s perspective on where lending growth could come from next. Watch the full video.
Lending Market Cycles Create Opportunity for Lenders Ready to Adapt
Having worked through more than four decades of change in banking and finance, Craig has seen lending markets move through very different cycles. One lesson has remained consistent. Every market cycle creates opportunity.
Borrower demand evolves. New products emerge. Different asset classes attract capital. And lenders adapt. The question is whether you adapt early enough to take advantage of that change.
Rather than waiting for residential volumes to return to previous levels, lending executives have an opportunity to look more strategically at their businesses now.
- Where are customers looking for finance?
- Which areas of lending are showing greater resilience?
- Which products make sense for your existing customer base?
- And do you have the capability to support them?
The lenders investing in those conversations now may be much better placed when demand accelerates.
Where Are the Next Growth Opportunities for Australian Lenders?
For many lenders, diversification means taking a closer look at commercial lending, SME lending, development finance and other specialist lending opportunities.
Commercial lending in particular was already gaining momentum before the recent SMSF legislative changes.
Deloitte’s Commercial Real Estate Outlook found that around 80 per cent of lenders expected commercial lending activity to increase. The recent changes to SMSF lending have simply brought greater attention to a market that was already moving in that direction.
New residential SMSF borrowing has now effectively ceased. Commercial property, however, remains eligible for SMSF borrowing, while existing residential SMSF loans are grandfathered and lenders can continue to refinance those existing facilities.
The opportunity hasn’t disappeared. It has shifted. For lenders and brokers, understanding where that demand moves next will become increasingly important.
Why Commercial Lending Deserves a Closer Look
Commercial lending should not simply be viewed as a response to the SMSF changes. It represents a broader opportunity for lenders looking to diversify their product mix and build deeper customer relationships.
Commercial lending can deliver larger loan values, longer customer relationships and less price competition than traditional residential lending. Instead of simply processing individual transactions, lenders have an opportunity to build broader banking relationships with their customers.
Imagine an existing residential customer who also owns a business, wants to acquire business premises or is looking for finance to support their next stage of growth.
Does your current product suite allow you to continue that relationship? Or does that customer need to go elsewhere? That is where diversification becomes more than a defensive strategy. It becomes a customer growth strategy.
▶ Watch Craig discuss why commercial lending is worth a closer look for lenders.
The Biggest Commercial Lending Mistake? Treating It Like Residential
Moving into commercial lending requires more than launching another product. It requires a different approach. As Craig says in the video:
“The biggest mistake I see is lenders treating commercial lending like residential lending with an extra zero on the loan amount.”
It doesn’t work that way. Commercial lending requires a different mindset, different documentation, different processes, and different legal considerations.
Trying to force commercial transactions through residential precedents or highly standardised residential workflows can create unnecessary complexity, delays and execution risk.
The objective should not be to make commercial lending operate exactly like residential lending. It should be to make commercial lending easier to execute well. That means automating the repeatable elements while ensuring specialist expertise is available for the transactions and structures that require it.
Why Some Lenders Still Hesitate to Enter Commercial Lending
For lenders that have spent years building highly efficient residential lending operations, commercial lending can appear daunting. There can be concerns around documentation, security structures, internal capability, resources, and simply getting it wrong.
But complexity does not need to become a barrier to growth. Many commercial transactions are well within reach when lenders have the right people, processes and specialist support around them. And entering commercial lending does not mean starting with the most complicated deal on the desk.
Lenders can identify products that align naturally with their existing customer base, start with less complex commercial transactions, and progressively build capability and confidence.
The key is to start building that capability before demand forces your hand.
How Can Lenders Build Commercial Lending Capability?
For lenders considering commercial lending or expanding an existing offering, the starting point should not be volume. It should be readiness.
The lenders approaching this strategically are reviewing their product strategy, ensuring documentation is fit for purpose, training credit and settlements teams, and identifying commercial products that suit their existing customers.
They are starting with less complex transactions and building confidence before moving into more sophisticated lending.
For example, a lender with an established residential customer base may identify a natural opportunity to support existing customers moving into business premises or commercial property.
Another lender may already offer commercial products but recognise that its documentation, settlement workflows or internal processes are limiting its ability to scale efficiently.
The opportunity will look different for every lender. What matters is having the infrastructure to support it.
▶ See Craig’s full discussion on building lending capability before volume accelerates.
New Lending Products Need More Than a Credit Policy
One of the most important conversations for lenders right now is not simply: What product should we launch next? It is: Are we actually ready to deliver it?
A new commercial or specialist lending product touches far more than credit policy. Documentation needs to be fit for purpose. Security requirements need to be understood. Credit and operations teams need clarity. Settlement processes need to support the transaction. Technology and automation need to be applied where they genuinely improve execution.
This is where engaging specialist legal support early can make a significant difference. At Green Mortgage Lawyers, we work alongside lenders through these decisions.
Sometimes that means helping a lender bring an entirely new product to market. Sometimes it means redesigning documentation and precedents to support a new lending strategy.
It can also mean reviewing workflows, strengthening operational processes, supporting more complex security structures, or working with lender technology teams to improve automation and help the business scale.
We deal with complex lending transactions every day and have invested in technology, digital workflows and specialist legal expertise to help make those transactions simpler, faster and easier for lenders to manage. Because our role is not simply to prepare documents. It is to work as a long term legal partner, helping our lenders respond to changing markets, build new capabilities, and create opportunities for future growth.
5 Questions Every Lending Executive Should Be Having
There are 5 important questions worth putting on the agenda of lending leadership teams right now:
- Are we too reliant on residential lending?
- If residential volumes remain under pressure, where is our next growth market going to come from?
- Do we have the products and capability to support it?
- Are our systems, documentation and people ready?
And perhaps most importantly:
5. Are we investing in the capability we will need over the next three to five years, or are we simply reacting to what is happening today?
Because softer residential lending does not mean opportunity has disappeared. It means lenders need to know where opportunity is moving.
See the Lending Growth Shift at a glance in our one page market snapshot.
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Watch: Diversifying Lending in a Changing Market
In the latest GML Lender Insights, Managing Partner Craig Green, shares his perspective on the changing Australian lending market, diversification, commercial lending and what lenders can be doing now to prepare for future growth.
Drawing on more than 40 years in banking and finance, Craig looks beyond today’s residential slowdown to the bigger question facing lending businesses:
Where will your next wave of growth come from?
▶ Watch the Full Lender Insights Video
And if commercial lending, specialist lending or new product development is part of your growth strategy, talk to GML about how we can help build the legal, documentation and operational foundations to support it.